TED Case Studies
Number xxx, 2004
by Caroline Danauy

 

Cuban Coffee: Geographic Indication, Intellectual Property

 

 

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I. Identification

1. The Issue

Although the U.S. embargo prohibits the importation of Cuban coffee, grocery stores and cafeterias in predominately Cuban American communities still sell their version of Cuban coffee. This is possible because the coffee is sold and marketed by U.S. companies as Cuban coffee even though it is made from other countries' coffee beans. Meanwhile, the coffee industry in Cuba, traditionally a source of national pride, struggles to remain a profitable enterprise. It is unclear whether coffee production outside of Cuba and labelling it Cuban coffee is an infringement of geographic indication. The details of this case merit attention even if they are not involved in any legal trade dispute proceedings due to the international tension between Cuba, the coffee exporter, and the U.S. the world's foremost coffee importer.

2. Description

Tu Cafe Cafetera Cuban coffee is known for its strong taste served in small amounts with excessive caffeine and sugar. The coffee beans are finely grounded and dark roasted. The coffee is prepared espresso style using a machine like the one to in the picture to the left.

According to a coffee commentator on www.ineedcoffee.com , "What tequila is to liquor, café cubano is to the world of coffee."

 

* * Listen to how one Cuban coffee distributor in Miami, Florida describes Cuban coffee. * *
Audio version in Spanish. For English text version click here.

A. Historical Overview of the Coffee Industry in Cuba

According to the Tea and Coffee magazine, coffee production was introduced to Cuban society in the mid-18th century. By the year 1790, Cuba was a main exporter to Spain; soon French coffee farmers fleeing the Haitian revolution established themselves in Cuba, furthering the coffee industry on the Island. The Island's environment of high humidity and undisturbed soils fostered the development of the industry.

By the 1820s, coffee production was contributing even more to Cuba's economy than sugar. In the years right before the Cuban Revolution (1956), Cuba was exporting 20,000 metric tons of coffee valued at $21.5 million and was producing its highest ever yield of coffee per acre (316.6 pounds per acre).

With the Cuban Revolution came the nationalization of the coffee farms and the decline of the coffee industry in general. Production levels during the late 1960s and 1970s were comparable to those of the 1920s. In the late 1970s and early 1980s, the industry had a slight recovery only to be devastated once again with the fall of the Soviet Union (Cuba's principle benefactor) in 1990.

Why the decline of the coffee industry? First, Cuba's economic downfall led to further migration to the cities and a weaker labor force available to the coffee farms. Second, in an effort to strengthen the coffee industry during the 1960s, the government aimed at developing a coffee growing belt along the outskirts of Havana by using a volunteer labor force. The replacement of traditional coffee farmers with volunteers who knew nothing about coffee greatly affected the industry. The program was unsuccessful and in order to redeem itself the government established yet another program in 1989 under the direction of Raul Castro, Fidel Castro's brother. The later program, known as the Turquino program, improved the agricultural infrastructure and offered agricultural workers better housing. Nevertheless, the program did not attract much attention.

 

B. Cuban coffee in Exile

Naturally, Cuban coffee is very popular in areas of the United States where there is a large Cuban American population such as Miami. However, due to legal restrictions the Cuban coffee consumed in the U.S. is made by grinding beans from anywhere but Cuba.

In fact, as a local Miami newspaper, the Miami New Times, points out:

Coffee Workers "There is nothing Cuban about Cuban coffee. The beans are grown in Brazil or Colombia, the coffee machine is made in Italy, and the person who serves it to you from a sidewalk cafeteria is most likely going to be from Nicaragua, Argentina, or anywhere else but Cuba."

 


Miami-based businesses such as the well-known Café Pilon profit greatly from selling and marketing their version of Cuban coffee. The company, which has roots as a Cuban company dating back to 1860s, was expelled from Cuba in 1960 due to the Revolution. With approximately 1.4 million Cuban Americans living in the U.S. today, they have found a viable market and average $70 million in annual sales.

B. The Cuban coffee industry on the Island

Havana 89 miles from U.S. SignIn the meantime (and only 90 miles away) Cuba struggles to maintain coffee production as a rewarding industry. Harsh climatic conditions, out-of-date technology, and massive rural-urban migration have contributed to deteriorated roads and a lack of adequate work force. Morevoer, “The loss of experienced workers has forced the government to rely on unpaid middle- and high-school students to harvest the coffee crop,” reports CubaNews.

According to Cuba's Ministry of Agriculture's Cuba-Café-Cacao Agribusiness group, new varieties of Cuban coffee are being prepared for export with focused interest on the Japanese market. The top importers of Cuban coffee (made with authentic Cuban coffee beans) are Japan, France, Italy, Spain, Germany, the United Kingdom, Canada, Switzerland and the Netherlands. However, the export of Cuban coffee still remains a disappointment when compared to pre-Revolution statistics. According to Tea and Coffee, "export revenue from coffee comes to just 1% of the total value of Cuban exports, down from 3.9% in 1956."

Coffee holds traditional value and historic cultural significance for Cubans. It reminds Cubans of their origins as "campesinos" or their origins as peasant/rural-dwellers as well as the historical and economic importance of slavery and sugar and coffee plantations (along with tobacco, these were the top three exports during Cuba's birth as a nation in the early 1900s). In addition, for many the small cup of coffee is not just their much-needed caffeine fix for the day, but also their time to socialize and unwind at their local cafeteria.

According to an interview with a current visitor from the Island, Cubans today are only alloted 2 ounces of coffee every 15 days. The coffee's quality sufers greatly since it is mixed in with other ingredients to render greater quantities.


3. Related Cases

The coffee bean is a vital agricultural export for many Latin American countries. Issues surrounding coffee affect labor, the environment, and the economy of these countries. One can use the TED advanced search engine to locate various cases involving coffee. However, the more compelling issue regarding Cuban coffee is that it deals with a product that is produced in one country but sold with the name of the country (Cuban). This is like the Panamanian hats case which were really made in Ecuador but sold as Panamanian hats.


The Bacardi case is similar since it deals with an originally Cuban corporation that sought ways to keep on producing its product abroad after the Cuban revolution. Café Pilon sold Cuban coffee in Cuba prior to the revolution came to Miami much like the Barcardi family produced and sold Rum. These companies reinvented their businesses in the United States. The Barcardi case, however, is different due to the fact that they were in argument over the intellectual property rights to the Rum mix recipe. There is no secret recipe or process involved with the production of Cuban coffee.

4. Author and Date:

Caroline Danauy
July 2004

 

 

II. Legal Clusters

5. Discourse and Status:

The Cuban coffee case study describes a situation where the coffee itself is labeled and sold as "Cuban" but the beans and place of production are not of Cuban origin. In other words, this case study questions whether it is wrong to label the coffee Cuban when its beans and its production locale is not in Cuba.

The case has not been presented at the World Trade Organization or to any other international dispute settlement. If Cuban coffee growers were to attempt to pursue international legal action against U.S. companies who sell Cuban coffee, they may claim that U.S. companies have violated the intellectual property rights of Cuban corporations. Countries that are members of the WTO (as are both the U.S. and Cuba) must respect the intellectual property rights as outlined in the WTO Trade Related Aspects of Intellectual Property or TRIPS agreement.

According to the geographic indicators section of the WTO TRIPS website, using the place name when the product was made elsewhere or when it does not have the usual characteristics can mislead consumers, and it can lead to unfair competition. The TRIPS Agreement says countries have to prevent this misuse of place names.

One of the three companies in charge of producing coffee in Cuba, the Cuba-Café-Cacao group or Havana's CIMEX Corporation, or the Agrotex company, may claim that in using the Cuban coffee name U.S. companies are violating the WTO TRIPS agreement. But how would the U.S. company react ? They may say that Cuban coffee is not a geographical indicator since it is the procedure and not the beans which makes coffee Cuban.

According to the WTO, this "geographical indication" does not only say where the product was made. More importantly, it identifies the product's special characteristics, which are the result of the product's origins.

It then becomes critical to determine what are the "special characteristics" of Cuban coffee, the beans, the procedure in which the beans are roasted and grounded, or both? For instance, if there is something about Cuba's soil or climatic conditions which produce a coffee bean distinctly Cuban, then it is a geographical indicator. However, if it is solely because the way the beans are produced that makes the coffee Cuban then this case is not a matter of geographical indicators but rather a matter of patents. Under the WTO TRIPS agreement, the production process may be protected under a patent for at least 20 years. However, the Cuban government would have had to register the patent with the WTO. Moreover, it is questionable whether the procedure of making Cuban coffee could be patented to any Cuban corporation since individual men like Manuel Jesus Bascuas, the original owner of Café Pilon in Cuba, left the island after the Cuban Revolution with this knowledge or "intellectual property."


Cafe Pilon PackageCafé Pilon was actually a very popular brand name in Cuba before the revolution and according to the current owners of Café Pilon it was almost considered a "national brand." Had the Cuban government registered the name Café Pilon as a brand, then trademark law would be applicable, as the case has been with other Cuban products such as Havana Rum and Cohiba cigars.

Previously, a US law known as Section 211 of Congress' Omnibus Appropriations Act of 1998 would have denied Cuban producers their intellectual property rights. This law prohibited Cuban corporations from protecting their registered trademarks under U.S. courts. However, in 2002 a WTO panel ruled the law violated the WTO TRIPS agreement.

Overall, it is not very clear which legal aspects would apply to the Cuban coffee case, if any at all. However, as relations between Cuba and the United States have proven in the past, any small loophole or opportunity for conflict will surely be taken advantage of. Unlike other countries, trade negotiation is not an option to resolving trade disputes between Cuba and the U.S. Due to this tension, it is valuable to monitor potential trade conflicts even if they have not yet been in the international spotlight.

6. Forum and Scope:

The case of Cuban coffee is essentially an issue between the US and Cuba which makes the case bilateral in scope.

However, a multinational organization like the WTO or UN would likely monitor and negotiate any disagreement which was to arise from this case. Judging from past trade disagreements between Cuba and the U.S., the respective governments of both countries would surely be heavily involved.


7. Decision Breadth:

The potential impact of this case influences coffee growers in Cuba and the other Latin American and Caribbean countries from which U.S. Cuban coffee companies are buying their coffee as well as the U.S. Cuban coffee distributors. Moreover, it impacts every consumer of Cuban coffee in the world.


8. Legal Standing:
Treaty


III. Geographic Clusters

9. Geographic Locations Map of Cuba

a. Geographic Domain: North America

b. Geographic Site: Southeastern North America

c. Geographic Impact: Cuba and U.S., specifically South Florida


10. Sub-National Factors:
none


11. Type of Habitat:
Tropical


IV. Trade Clusters

12. Type of Measure: Import Ban

The United States has an embargo on all Cuban goods, meaning that the United States prohibits the importing of Cuban goods. In essence, this means that there is an import ban on Cuban coffee made with Cuban coffee beans. This import ban has been in place since July 8 , 1963 when the U.S. Government issued the Trading With The Enemy Act in response to heightened Cold War threats. The United States Department of Treasury monitors compliance with the embargo, which is still in effect today.


13. Direct v. Indirect Impacts:

The import ban on Cuban coffee creates a direct impact on both the Cuban coffee industry in Cuba and the United States. By not allowing the importation of the authentic Cuban beans, the embargo creates a large market for Cuban coffee for U.S. companies.


14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product:

b. Indirectly Related to Product: Many, especially in Cuba, blame the embargo for the lack of a market for Cuban goods, which would include Cuban coffee.

c. Not Related to Product:

d. Related to Process: The process of coffee production in Cuba is noted for its environment- friendly approach. Due to the lack of technology, many traditional tools and processes are still used, giving Cuban coffee its well deserved reputation for being 100% organic.


15. Trade Product Identification:


The final product, Cuban coffee, comes from coffee beans. When these are grounded and roasted then they are put through an espresso machine. The Cuban coffee then becomes subject to personal taste, being served with plenty of sugar and milk for some.

It is disputable whether the Cuban coffee needs to come from Cuban coffee beans or whether it is simply the way these beans are roasted and grounded that makes the coffee special. The unclear identification of the trade product is an essential issue in this case.


16. Economic Data

According to 1999 estimates, there was an average of 265,000 coffee pickers composed of workers and their families, students, and a "mobilized force." Nevertheless, coffee is reportedly still the main source of employment in the mountainous regions of Cuba.

In Cuba, 250,000 bags of coffee are produced yearly during the July through February harvest and 50,000 bags are exported. The botanical species produced is Arabica, which holds a value of 64 cents a pound on the world market.

The Miami-based Café Pilon (also known as Rowland Roasters) generates $70 million in annual sales with 175 employees. (See transcript of Rowland Roaster's owners' interview with PBS.)

The Cuban government claims that the cumulative cost of U.S. economic sanctions on the Cuban economy was $67 billion through 1998, a sum that includes losses to trade and tourism as well as higher shipping costs for goods. Studies detailing the specific costs to the coffee industry where not found. (See article on the impacts of the embargo)

17. Impact of Trade Restriction:

President Bush speaking on Cuba policyAccording to the U.S. Government, the basic objective of the sanctions is to "isolate the Cuban government economically and deprive it of U.S. dollars." The punishment for violating the embargo (i.e. importing Cuban goods, like coffee) include criminal penalties that can be up to ten years in prison and $1,000,000 in corporate fines or $250,000 in individual fines. In addition, civil penalties may reach $55,000 per violation.

The import ban prohibits the importation of Cuban goods both directly from Cuba and indirectly through a third country. In other words, a U.S. citizen may not purchase Cuban goods in another country such as Mexico nor can Mexican companies import them into the U.S. There is only one exception to the ban; authorized travelers to Cuba may purchase and bring into the U.S. up to $100 worth of goods with the exception of alcohol and tobacco.
With respect to the Cuban coffee case, the U.S. Embargo on Cuban goods undoubtedly creates a challenge for those who would like to be able to purchase and sell Cuban coffee made with Cuban coffee beans. Meanwhile, companies that make Cuban coffee with beans from other countries (like Café Pilon) have expressed interest in selling their coffee in Cuba once a democratic government replaces Cuba's current regime.

The current Bush administration clearly does not plan on lifting the embargo anytime soon. In fact, the U.S. government has announced measures to reduce the amount of allotted remittances and travels to Cuba by Cuban Americans, making relations between the two countries even more strained.

18. Industry Sector:

The trade product of my case study is coffee, which falls under the agricultural sector. Coffee has become a sensitive trade issue for many countries whose economies are poor and, therefore, depend on the trade product.

19. Exporters and Importers:

The United States is the top importer of coffee worldwide. According to the 2001 National Coffee Association's annual Coffee Drinking Trends survey, 52% of American adults drink coffee every day. Twenty-nine million American adults drink gourmet coffee beverages every day. In 2003, the United States imported 22,907,630 60 kilo bags according to the International Coffee Organization.

Cubaexport is the only exporter of coffee in Cuba and pays a fixed price (regulated by the government) to the processing center. Japan and France currently account for 70-80 percent of Cuban coffee exports; other importers of Cuban coffee include Italy, Spain, Germany, the United Kingdom, Canada, Switzerland and the Netherlands. However, an opening of trade relations between the U.S. and Cuba would likely lead to greater sales on the international market and greater production.

Meanwhile, the Miami-based Café Pilon (also known as Rowland Roasters) generates $70 million in annual sales. By selling and marketing the coffee as "the one to use when you want authentic Cuban coffee" Café Pilon has become a top-seller. In addition, there are other smaller but also profiting Cuban coffee companies like Tu Cafe and Cafe Llave.

 

V. Environment Clusters

20. Environmental Problem Type:

According to 1999 estimates by the Cuban government, coffee production covers 119,740 hectares or 2% of the island's arable land. The main coffee regions are the Escambray mountains in the center of Cuba, the Sierra Maestra mountain range, and the Nipe and Sagua-Baracoa mountains in the east, and, finally, the GuaniguanicoCuban mountains in the west. Harsh rainfall followed by prolonged drought have made it difficult for maintain the roads necessary to transport the coffee beans from these regions. Traditional methods of transportation, i.e. mules, are used instead of trucks. Moreover, traditional methods are used to prepare the beans for export. For instance, coffee growers leave the beans out to try in the sun instead of using the high-tech mechanical dryers. The poor roads also provide a disincentive for laborers to work in the coffee plantations.

The Cuban government will undoubtedly face challenges as it attempts to stimulate coffee production and exportation. Although Cuba hopes that increasing Cuban coffee production will translate into increased hard-currency income, world prices for coffee have been falling steadily and creating what some have labeled a "coffee crisis". In addition, the Cuban government needs to work to modernize the technology used in the coffee industry while retaining their ecologically friendly practices.

21. Name, Type, and Diversity of Species

Name: Coffee bean

Type: Arabica species

22. Resource Impact and Effect:

The environment problems associated with the Cuban coffee industry have a low impact on the case presented. Although these problems do influence the production of coffee in Cuba, the competitiveness with U.S. companies distributing Cuban coffee has much more to do with trade barriers and politics than with environmental issues.

23. Urgency and Lifetime: Not applicable

24. Substitutes: Not applicable


VI. Other Factors

25. Culture:

However, Cuba may regain a sense of pride in their country's coffee by marketing and selling their coffee more successfully. Along with sugar and tobacco, coffee represents more than an important staple. For Cubans, these crops symbolized their economic lifeline but beyond the money, they have penetrated every aspect of the Cuban's life. The famous Cuban singer, Celia Cruz, shouted "azucar" or "sugar" to get an audience excited at her concerts. Similarly, a recent Public Broadcasting Servicedocumentary on the generational differences of Cuban Americans was entitled "Café con Leche" or coffee with milk. Clearly, coffee is not just a beverage of choice but an important cultural icon.

As one author put it,

"The Cuban cultural body is nothing if not caffeinated, caffeine-driven and addicted…coffee is the drug that fuels that mania. More sobering than intoxicating, coffee may indeed still be rising to true prominence as the nectar inspiring a responsible Cuban historical vision."

The fact is that coffee is not as abundant nor accessible to the average consumer in Cuba as it once was. It may have a different meaning for the current generation of Cubans than it once had in the past. Similarly, coffee may symbolize something different for those Cubans living outside of Cuba than it does for those in the Island. One then encounters the unique situation where immigrants in a matter export a geographic indicator, in this case coffee.

An Analysis on various viewpoints:

A. The Cuban Agronomist's Perspective
The first hypothetical example of the cultural impacts that this case may have is the reaction of a Cuban agronomist and expert coffee taster who heads the Ministry of Agriculture's Cuba-Café-Cacao-Agribusiness Group which is responsible for verifying the quality of coffee for export. He or she wants Cuba's coffee business to modernize and export more widely to the international market. Quite aware of the restrictions that the Cuban embargo places pursuing this task, he tries his best to attract workers to the industry. His attitude toward distribution of coffee with another country's beans but sold under the name of "Cuban coffee" is one of disdain. He feels proud of the Cuban coffee bean and the history and culture that it symbolizes, and he wishes coffee would improve its status as a profitable industry for the economically struggling country.

B. Cuban American Distributer's Perspective
A second important perspective is that of the De Soto brothers who are currently co-owners of Café Pilon, the Cuban coffee giant in the U.S. market. After the Cuban revolution, many Cubans who were well-established in Cuba lost their businesses. The owner of Café Pilon was one of these men, but he arrived in the United States and rebuilt the business once more, eventually selling it to the De Soto family. To this family, Cuban coffee also encompasses tradition and culture. However, unlike the head of the Agribusinesses group they view the source of the Cuban coffee beans irrelevant. The coffee culture is embodied in the act of drinking the coffee, the way it is prepared, and the time that is shared by loved ones over a cup of coffee. The fact that the beans are Jamaican or Colombian is just an unfortunate effect of the Cuban revolution.

* * Listen to how one Cuban coffee distributor in Miami, Florida shares his opinion on the importance of the source of the coffee bean and the impact of the Cuban American coffee businesses on the coffee industry in Cuba. * *
Audio version in Spanish. For English text version click here.

C. The Cuban coffee drinker
Third, is the perspective of the consumer who just wants to be able to drink a cup of authentic Cuban coffee, whatever that may be. The consumer does not care much for the politics of the embargo, but does not appreciate that he cannot purchase Cuban coffee beans. He is confused by the fact that there is "Cuban coffee" in the Latin American ethnic food section of the grocery store, and wonders how the embargo fits into this all. Other consumers from countries like Canada are free to purchase Cuban coffee through the internet via websites like Café Etico .

 

26. Trans-Boundary Issues: No

27. Rights: No

28. Relevant Literature

Small Business School transcript of interview with the De Souto brothers, owners of Café Pilon.

WTO Trips Website

Good sources on coffee, general information and statistics :
Coffee Science
International Coffee Organization

For information on the Cuban Embargo:
"What You Need To Know About The US Embargo" by the US Department of the Treasury: Office of Foreign Assets Control.

Ortiz, Ricardo. "Café Culpa and Capital: Nostalgic Addictions of Cuban Exile." The Yale Journal of Criticism v. 10.1, pp. 63-67

"Big Taste in a Little Cup," The Boston Globe, February 19, 2003.

"Best Café Cubano, " Miami New Times, May 13, 2004.

Suarez, Maria- Victoria. "Café Cubano," http://www.ineedcoffee.com/99/09/cubano/

Pages, Raisa. "A Historical Cup," . [A Cuban journalists account of the history of Cuban coffee]

Bourbeau H. "Of rations and riches: Cuban coffee." Tea and Coffee Trade Journal, New York, Vol (169), No. (11): 92-94. Nov. 1997.

Luxner, L. "Cuban coffee: seeking foreign investment." Tea and Coffee Trade Journal, New york, Vol (168), No. (8): 68-71. Aug 1995.

 

Image credits:

Cuban coffee cup : www.where-miami.com
Coffee espresso machine courtesy of Tu Cafe
Cafe Pilon: www.thruthemail.com
All other photographs are found on U.S. Government websites

 

Interview Transcript in English
with Ignacio Puente, President of Cafetales de Miami also known as Tu Cafe:

Q. In your opinion, what makes Cuban coffee?

A. Cuban coffee is in reality an espresso with a big more of roast in the beans, and the popularity of Cuban coffee was established here in Miami with all the Cuban Americans who arrived here, to this [Florida] peninsula.

Q. How did you get started in the coffee business?

A. In 1973, when I came from Puerto Rico I began to work in Café Ideal also known as Cuban Pure Coffee Incorporated, a company which had been in Miami since 1956- it had been funded by the Cuban Institute of Coffee from the Cuban government before Fidel Castro's government came to power in 1959.

Q. In your opinion, does it matter where the Coffee bean comes from in determining whether the coffee is Cuban?

A. No, in reality the type of coffee that we use for Cuban coffee is Arabica. Some companies use all Arabica and some companies use a percentage of Arabica with some Robust. This coffee is found in various countries Ecuador, Mexico, Dominican Republic, etc.

Q. In your opinion, has the Cuban coffee industry been affected by the Cuban American and American companies production of Cuban coffee?

A. There is no difference between the coffee here and that there. But there also is no way of impacting the industry over there. Due to the regime in Cuba, they export the Cuban coffee bean and solely utilize a 50% mixture of coffee (50% coffee beans and 50% peas) giving the Cuban population a 50-50 mixture.

 




7 /2004

Please contact me at Caroline.Danauy@american.edu